Why timeshare developers don't lose control over the properties to unit owners?

[jerrry94087 Senior Member Find all posts View Profile Close jerrry94087]

Usually they describe this on TS presentations: developer has that many units, they split them into weeks and sell individual weeks, or points, to people. 1000 units will make ~52000 weeks.

But after all units are sold, what does developer actually own? Looks like this turns the developer into the maintenance company, most of the property being owned by the individual unit owners. But I never heard of the developer losing control over the property. Usually individual unit owners just keep complaining about maintenance fee hikes, developers obviously usually turn MFs into profits.

Why don't individual owners take over and control the resorts and maintenance fees? What am I missing?

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

Owners do take control. On the OBX in NC, most developers turned over control to owner-controlled HOA's when the resorts sold out. There were two notable exceptions, First Flight Builders, which developed four resorts and Barrier Island Station, which developed two and bought out a third from the original developer. Both tried to settle into the role of longterm management. The problem at First Flight was resolved back in the early 1990s, as concerned owners groups organized at their resorts and lawyered up. The first up to ther firing line, Dunes South, had to go to court and indeed the case went all the way to the state Supreme Court, but the owners whipped the developer at every stage. The others were able to settle with First Flight out of court. First Flight ended up having to hand over both managemant/HOA control and ownership of all remaining developer weeks to the new owner-controlled HOA's. In the case of Ocean Villas II they also had to pay the HOA a six figure sum in cash. Barrier Island Station held on longer, but their first resort, Barrier Island Station Duck is now finally under an owner controlled HOA and independent management but that just happened in the last year.

At two resorts I have owned at in South Africa, owners also had to push the developer out and take control. At resorts I have owned at in England and the Netherlands, the developer handed over control to owner-controlled committees without any fuss.

It really varies. There are greedy and overbearing developers and there are those who realize that there is an appropriate time to ride into the sunset. Personally, I avoid owning at resorts run by the former.

[T. R. Oglodyte Moderator Find all posts View Profile Close T. R. Oglodyte]

Developers have developed a number of tricks and strategies to maintain control, with varying shades of ethics.

Here are a couple of strategies with which I am familiar.

When Sunterra developed properties in Hawai'i, Sunterra wrote into the timeshare program documents, right from the start, that any involuntary change in resort management required approval by 50% of the owners at the property. Not 50%of the owners who either vote in person or submit proxies, but 50% of the total number of owners. That means that any owner who might not return a proxy when change of ownership is on the ballot is, in effect, voting to retain the current management.

Since only about 10% to 20% of owners ever return proxies for an annual meeting, that requirement that 50% of all owners approve the change is, for practical purposes, a guarantee of retaining management in perpetuity.

Then Sunterra extended the Club Sunterra program to include those Hawai'i resorts. When an owner joins their property to Club Sunterra (now the Diamond Resorts Club) the owner cedes the deed to a trust, which means that the trust votes those units as a bloc. Note that the trust was created by the developer, so the trustees are beholden to the developer. In addition, the Trustee is usually an organization such as the Trust Department of a large commercial bank, which also happens to be an institution for whom the developer is a significant client. So there is always the implicit notion that if the trustee should do something the developer doesn't like, the trustee's company might lose the developers underlying business.

So it's pretty much a given that in situations such as this the Trustee is going to vote it's deeds pretty much as the developer wants.

If as few as 20% of the ownerships are in the trust, this is almost bulletproof control, as a 20% ownership interest is more than enough to control the Board of Directors given that 80% of the remaining owners don't even bother to proxy.

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

Some of these points clubs where owners convey their week to a trust or similar arrangement are indeed a threat to the independence of resorts. A number in South Africa have fallen to unscupulous points club management, such as Club Leisure Group with usually very bad results for the regular owners. Dikhololo just fought off such an attempt recently.

I had a few drinks with some board members at Stouts Hill in the UK and heard how they had fought off Sunterra with a poison pill some years ago. Sunterra was buying the remaining developer inventory and there was fear that this would put them in the drivers seat for control of the resort. One of the board members I was talking to proposed a solution. They amended their governing documents to give only one vote per owner no matter how many weeks the owner had. That way Sunterra (now DRI) only has one vote and is no threat to owner control.

[Larry Senior Member Find all posts View Profile Close Larry]

Most of the timeshares that I own are controlled by the HOA and developer was voted out several years ago. As developers sell out they usually only have the management contract since timeshare owners don't know much about running a resort so they just renew the contract.

When developers get greedy and start gouging owners is when someone steps to the plate and organizes owners to first vote out developer from board and then find a new management company.

This has been my experience with most of the timeshares I have owned and that is why I will never purchase into a system such as Diamond resorts.

[Timeshare junkie Member Find all posts View Profile Close Timeshare junkie]

Why do developers bother with deeds.

Why don't developers just offer right-to-use contracts.

This way they don't have the resort to tricks to maintain control of the management of the resort after it has sold it. Wouldn't a developer be better at the day-day mgmt of a resort considering this is what they do rather than handing over control to the HOA made up of volunteer owners.

Obviously this model leaves the door open for exploitation by greedy developers, but with oversight by the HOA and strict measures to control the increase in maintenance fees, this would seem an obvious way to go.

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

They may get the property back in the future, but that does not give them management control in the present with this arrangement. An example is Broome Park in the UK, where the underlying property will go back to Sunterra/DRI in 5 or 6 years under the RTU contract, but until then DRI has absolutely no say in managment.

Why do developers bother with deeds.

Why don't developers just offer right-to-use contracts.

This way they don't have the resort to tricks to maintain control of the management of the resort after it has sold it. Wouldn't a developer be better at the day-day mgmt of a resort considering this is what they do rather than handing over control to the HOA made up of volunteer owners.

Obviously this model leaves the door open for exploitation by greedy developers, but with oversight by the HOA and strict measures to control the increase in maintenance fees, this would seem an obvious way to go.